Nifty Index Investing Newsletter [18th May 2024]
What to do in current market scenario ? SIP or Lump sum ?
A good week for the markets, Nifty advanced 1.9% and is now above its 50 DMA and 21 DMA as well, so that’s healthy. Now we have ~66% stocks above 50 DMA which is a huge improvement from last week (49%). Let’s see if Nifty can carry this on and reach it ATH again to resume the rally upwards. For now, we see its health and just eat the popcorn until its time to fire the lumpsum bullet.
Is it oversold now? Should one buy ? I certainly don’t know, but what we know is how to measure the data points we have been week over week and take decision accordingly as per our risk tolerance. :)
[Please note, I only track 750 stock universe comprising of NIFTY500 and NIFTYMicroCap250 indexes]
World markets continued its uptrend from last week. If you remember we talked about Nifty and world markets being a bit uncorrelated and the fall seems to be local, not global. We can see now that Nifty has corrected in direction of the world markets and now the correlation is back on track. So in hindsight (the best sight btw), last week seems like a deviation which we could have jumped in on.
But as you know, we are not here to predict what happens, we are here to understand if its time to press on the gas for lumpsum investments or just do our normal SIPs ;)
Let’s get to the meat of this week’s update and see how the Nifty Market Breadth Tables are looking now. Following are the links in case you missed the previous 3 updates :
27th Apr 2024
04th May 2024
11th May 2024
Surprisingly, Nifty50 on the market breadth table is not showing improvement week over week for the past 3 weeks. In a way this could be a good sign as well in the volatility we have experienced in the same timeframe. Market breadth is intact, not deteriorating.
Nifty500 now has 66% stocks above 50 DMA in comparison to 50% stocks we saw last week. So that’s a significant improvement. Net new highs should catch up next week to show improvement as well as its a lagging indicator. For now, we are in green territory as we can see, so Nifty500 has stabilized thanks to this week’s action.
Another week where Nifty MicroCap250 gave a correlated action with Nifty500. Breadth has improved, 67% stocks are now above 50 DMA compared to 47% last week, so that’s an improvement. Just as Nifty500, I expect the net new highs to improve this week if we get some decent action as net new highs is a lagging indicator generally.
Maybe its a sign of things to come, maybe not. All we can do it read the table week over week and press on that beautiful app on our smartphones to buy more units for our passive investments ;)
[Give it time, these numbers will become second nature once you keep looking at it every week]
So, my fundamental rule here is “red cell in the row” be aggressive and buy lumpsum ELSE keep the monthly SIP rolling as per plan…
Based on the above rule, I’ll be taking the following steps as a summary :
Nifty 50 → Keep the regular SIP. No lumpsum required.
Nifty 500 → Keep the regular SIP. No lumpsum required.
Nifty MicroCap 250 → Keep the regular SIP. No lumpsum required.
As always, I’ll be sharing weekly updates with the above tables and it will slowly become apparent when can one be aggressive or when can one continue with SIPs. As long as data gives comfort to invest big, that’s all we need it for. Removing emotion from SIPs is the best thing a passive investor can do. And investing big lumpsum amounts when the time comes will be like a rocket fuel to overall corpus.
For reference, in 2023, One could have been aggressive with lumpsum investments in Jan-Feb-Mar-Apr-Nov as per data in the above tables. This would have resulted in better returns when we consider investing in the Indexes (whether it be Nifty50, Nifty500 or Nifty MicroCap250).
Intention here is to average out fund units when turbulence hits. This way we lower our average purchase price more aggressively than when done with SIPs.
Please note, this strategy is usable only when one believes the India story and want to be part of India’s growth. If India has to grow and become a bigger economy, then Indexes like Nifty50, Nifty500 & NiftyMicroCap250 have to go much higher from here.
Covering Top 750 stocks (Nifty 500 and NiftyMicroCap250) is more than enough for the passive investor, going beyond that becomes too risky as liquidity is not supportive much.
Have a great week ahead and Happy Investing :)
[Disclaimer: The information in this article is for informational purposes only and is not financial advice. The author is not a licensed financial advisor. Readers should conduct their own research and consult with a qualified professional before making any financial decisions.]